Transfering Private Pension into NHS Pension

[Deleted User]

I am 48 soon and trying to sort out my retirement plan so that I can really focus for the last 18 years. However, I'm petrified of doing the wrong thing, as I really don't fully understand my options and how pensions etc work.

Is there any chance anyone would be able to give me basic advice on my dilema?

I have a small part time job of 10 hours per week that allows me access to an NHS pension. My employers would pay 14% into the scheme. I am thinking of joining this scheme and transferring a small Aviva pension with an approx transfer value of £7k into it. My gut instinct is telling this is what I should do.

As the income from the job is money I could now manage without I am also considering buying extra years within the scheme if I join. I can buy a minimum of £250 pa and a max of £2k pa on retirement, which I can pay from my salary monthly. However, buying extra looks expensive to me and I'm thinking perhaps an S&S ISA would be better than buying extra with the NHS pension scheme.

My other dilema is that I am starting college next week with the few to changing career and could possibly have to leave the NHS job within the next year or two as the hours may not fit in with my new career. So would joining etc still be worthwhile? I'm thinking if I can at least use the opportunity to transfer my private pension into an NHS one it might be worth it.

I know it's all vague but I would very much appreciate some basic advice. I have always been lead to believe the NHS is one of the best around and the fact that I would get 14% paid in too is drawing me to going down this route.

Thanking you in anticipation.

jamesd

Easy part first: if you can join, do. It's a great deal.

Harder to know about buying extra years. The deal is probably both expensive and good but I haven't looked at the terms. The good part is because some longevity and investment risk is being transferred away from you and into the scheme and hence tax payers.

You don't lose the money if you change jobs, it just waits for retirement and gets paid out then.

What are your housing plans? Maybe needing a deposit? The potential gain from being able to stop renting sooner may be better than buying extra years now.

So: join, but consider the benefits of saving earlier for a property deposit rather than buying additional years now.

jamiefly

Don't quote me on this but don't you have to pay into the NHS pension scheme for a minimum of two years otherwise they just return to you all payments made? and you're looking at a career change already.

Otherwise it's a great idea (seriously).

No hurry to buy into property right now, the balance is tipping towards falls in house prices over the coming years.

[Deleted User]

Thank you Jamesd for your prompt reply. I currently have a mortgage of approx £91k, I was hoping to buy a holiday home to run as a business and as an investment in about 3/4 years after saving up a deposit. I was originally planning to pay off most of the mortgage first but my IFA has advised to save in ISA's and then look at my options 3/4 years later. She said I would then have the choice to re-mortgage to finance the holiday home or pay off the first mortgage or cash buy the holiday home. She said if I paid into the mortgage the money would be gone and I wouldn't have as many options when I am ready to purchase a second home. I'm still trying to get my head around this advice though.

The problem I see with buying the extra years is that I only have a maximum of 18 years to do it or even less if I leave the job. As far as I understand one of the doctors at work was badly stung buying extra years too late, what he paid in didn't match his return.

However, I phoned the NHS pension helpline today and they said if I left it would just be paid out pro-rata, so I was thinking monthly payments would be the best way.

I've got a lump sum coming you see and it's my chance to get ahead. But I am definitely paying off my bank loan and the unsecured loan attached to the mortgage first which equates to approx £25k. So I'm having lots of sleepless nights trying to decide the best road to take. I am doing my research then going to chat to my IFA, although I must admit after our last meeting I don't feel confident with the outcome. She just sent me a letter summarising my options, most of which I suggested and said contact me when you've decided.

[Deleted User]

Jamiefly, that is a good question that I didn't ask on the phone today. I did mention that I may not be working within the NHS for much longer but he said it would be kept in and paid out pro-rata. I shall look for an answer on this on their website, if I can't find one I shall phone and ask.

Thank you for flagging it up it's good to know the right questions to ask.

Re property, that's another reason we've decided not to buy a second home now, we are hoping to get a better deal further down the line. However, I'm still undecided about that as well after reading loads on here. I'm going to save at the moment anyway and take stock as I see what happens with house prices.

jamesd

Penny Bridge, hmm, knowing just how much the amount involved is makes more investigation worthwhile. I was thinking it may be in the few thousands not over a hundred thousand.

One thing to check is whether you can transfer pension money into the NHS pension to buy added years. I don't know. If you can do that, one possibly interesting option for some of the money may be paying into a personal pension to get tax relief, then taking a 25% tax free lump sum when you're 55 and using the remaining 75% to by more years in the NHS pension. The lump sum can then be used to do some mortgage clearing if you like, or can be paid into a S&S ISA for longer term investing for retirement or other things.

I tend to dislike mortgage overpaying because I know that investments can be expected to deliver better investment returns than the mortgage interest rate. For the main UK stock market the average return over 110+ years has been about 5.1% plus inflation, a good deal more than most mortgage interest rates. So in general I like the idea of your IFA to use the ISA instead or for a while.

What are your mortgage interest rate and LTVs like? I'm wondering if a remortgage, perhaps to lower LTV, might get you a better interest rate without using so much of the money. This can sometimes be quite a nice win because a small extra capital amount gets a reduction in interest for the whole amount.

Is either of you a higher rate tax payer? The pension possibilities get even more interesting for higher rate tax payers getting within a few years of 55 or who are already over 55.

[Deleted User]

Jamesd, this is where I start to get lost in it all. I find it quite scarey looking at our LTV and interest rate. Our LTV is 79.13% (this excludes the unsecured loan, as this will be gone very soon) and the mortgage interest rate is 6.85%. Without going into too much personal details we both had to start again late in life with a 100% mortgage and bought the house just before the market crashed and secured our 100% mortgage the week before they were withdrawn from the market.

Our mortgage interest rate is fixed and we are tied in until Feb 2013. I told our IFA I at least wanted to pay some of the mortgage off to reduce the LTV and she said not to do it until we were out of the fixed rate and on a variable rate. She advised I need to make a capital repayment of approx £28,500 (based on 4.84%) to reduce the outstanding balance to approx £63k.

I am not a higher rate tax payer and at the moment neither is my OH. However, my OH is in the process of trying to secure a job where he will become a higher rate tax payer. If this does happen then buying a second home cash becomes a real possiblity or investing to our limit in ISA's and then looking at other areas to invest etc. All within a 3/4 year timescale.

As I have been through a really tough time financially in the last 7 years and now seeing the light at the end of a very dark tunnel, I just want to take baby steps and deal with one thing at a time.

I also don't want to set myself up for disappointment, therefore I am going to think long and hard about my options. My lump sum doesn't come through until December at the latest.

For now though I can definitely look at my small Aviva pension and joining the NHS scheme. Are you suggesting that I use my Aviva pot to buy extra years in the NHS as a lump sum, pay into the NHS pension as normal and buy more extra years by monthly instalments? Sorry if this sounds thick but I do get lost with it all.

Also, if it makes any difference I have another pension pot worth £142k at the moment. But this is frozen and I cannot move it or add to it.

jamesd

I agree with the IFA about waiting until the end of the fixed term. At 79.13% LTV you probably can save quite a bit of interest by getting down to 75% LTV without having to use much money to do it. Perhaps a little lower if you find a really good deal at lower LTV.

I don't have enough information about eh Aviva pot or the NHS pension to say more about that. At a minimum someone would have to know the amount of money and how many extra years you'd get with it. It's a good scheme but I don't know if extra years are a good deal or not.

Why is the £142k pot frozen and unmovable? That does happen in effect for some that have benefits like larger lump sums that you'd lose if you transferred.

I don't actually think you're in such a bad situation at the moment. You're doing pretty well on the pension side already!

Since you are wanting to do things in baby steps that tends to lead me to think that you should not buy more years now. May be too much going on for you to want to commit yourself until you're more comfortable. The mortgage LTV reduction is easy and reliable.

[Deleted User]

Jamiefly, I've looked into your concern re leaving the NHS pension scheme. I think I can keep it in as long as I have transferred in a private pension. Here is the link: -

http://www.nhsbsa.nhs.uk/Pensions/2663.aspx

Also on further investigation I think the maximum I can buy in extra income is £2k pa. However, it would cost me over £22k to do this! I'm just adding this quickly before I go to work but still have a lot of research to do before I make my final decision.

edinburgher

Also on further investigation I think the maximum I can buy in extra income is £2k pa. However, it would cost me over £22k to do this!

So you need to claim the pension for 11 years to break even? Doesn't sound so terrible assuming you're in good health?

[Deleted User]

Yes, I am in good health and put like that it's sounds reasonable. But it would be cheaper to buy via lump sum as the cost increases to over £36k over a 17 year payment plan! So I'm wondering would £22k be better in a S&S ISA and obviously I'd have to put that in staggered.

I think like jamesd said maybe I should just join first, transfer my private pension then assess buying extra at a later date. To be honest I've got a lot going on and a lot to think about, it's making my head explode. It's really difficult having options but no idea of all the implications. That's why I am on here looking for some guidance.